Pension Reform Takes an Unexpected Detour

July 31, 2006 ( - Pension reform legislation took another interesting turn late Friday night.

After conference committee negotiations got bogged down on Thursday (see  Pension Reform Stalls on Tax Break Provisions ), the House leadership decided to separate the pension provisions from non-related provisions (including a federal deduction for state and local sales taxes, renewal of a research tax credit for businesses, breaks for college tuition, and incentives for employers to hire former welfare recipients) introduced by Senate negotiators, and passed the former (in what is now called the Pension Protection Act of 2006) by a  279-131 vote  just ahead of its five-week August recess.   The Senate, which is still in session, is expected to take up the measure this week.

What remains unclear is what this all means for plan sponsors.   Republicans stripped out some $35 billion in tax incentives noted earlier whose passage Senate Democrats had tried to help ensure by bundling them with the pension provisions.   Instead, Republicans put those incentives in a separate bill that also includes reductions in the estate tax and an increase in the minimum wage – and then passed that second bill by a 230-180 vote.

What’s Next?

Procedurally, since the pension reform bill was not approved by the conference committee, the Senate could amend the bill, effectively leaving matters where they stood last April when the Senate and House versions still had to be reconciled.   Nor is that a remote possibility.   While House and Senate negotiators were said to be in general agreement on the pension issues, published reports indicate that there were still details to be worked out on two of the bill’s more controversial provisions – the treatment of troubled airline pensions and participant-level investment advice (see  Advice, Airline Relief Hold Up Pension Bill ).   The Los Angeles Times reported that, while House aides said their legislation reflected previous agreements with the Senate on pension issues, many of the supposed agreements were based on “handshakes and understandings,” rather than legislative language.

Alternatively, the Senate could postpone a vote on the pension reform bill until it votes on the estate tax/minimum wage/tax incentives bill.    The Democratic leadership in the Senate is very committed to the tax incentives package, and traditionally supportive of increases in the minimum wage - but adamantly opposed to reductions in the estate tax.   Senate Minority Leader Harry Reid (D-Nevada) vowed last week that Democrats would kill the hybrid bill, noting, "The Senate has rejected fiscally irresponsible estate tax giveaways before and will reject them again."   Unable to resolve the conflict, the Senate might well forestall a vote on pension reform.   

Uncertain Future

Ultimately, of course, even if the Senate votes on and passes the pension reform bill, there is no assurance that President Bush will sign it.   Earlier this year, Bush Administration officials expressed concerns about some of the bill's pension provisions (see  Official Reiterates Concerns about Pension Reform Bill ).   Additionally, last week the Pension Benefit Guaranty Corporation (PBGC), the nation's insurer of private pension plans and a presumed beneficiary of some of the reform proposals, said that the reforms being debated could actually exacerbate the financial challenges confronting the agency (see  PBGC Estimates Costly Impact of Pension Reform ).

Plan sponsors who were hoping for- or perhaps fearing - resolution of these issues will simply have to wait.